By Staff Writers
Maseru, Aug 08 (The Night’s Watch) – Lesotho Institute of Accountants (LIA) has vowed to conduct a thorough investigation into allegations by the International Monetary Fund (IMF) that local banks use foreign audit firms that are not registered in Lesotho to do their audits.
The IMF’s AFRITAC South mission, visited Maseru on March 4–14, 2019, at the request of Central Bank of Lesotho (CBL), to provide technical assistance on the implementation of Basel II.
On Jul 22, this year, the mission published a devastating report revealing what it called “a local banking practice” of having a foreign audit firm which is not registered in Lesotho and with no offices in the country, doing audit work for the banks but a small, domestic audit firm issuing and signing the auditor’s report.
IMF stated in the report that such practice did not comply with both the International Financial Reporting Standards (IFRS) and International Standards of Auditing (ISA).
Banks are required by law to prepare their financial statements as per full IFRS.
The IMF noted in its report: “Banks must have their annual financial statements audited in accordance with ISA, however, and despite not in the scope of this mission, while reviewing the financials of some banks, the mission found that there seems to be a local banking practice of having a Big 4 audit firm doing audit work for the bank but a small, domestic audit firm issuing and signing the Auditor’s report.”
It said while it was clear that that such audits were not conducted in accordance with ISAs, and that the audited financial statements were not IFRS-compliant, “the situation reveals a malpractice that consist of having Big 4 audit firm with no offices in Lesotho using a small Lesotho firm, which – otherwise – would not likely be able to perform as the auditor of a bank, to take full legal responsibility for the auditor’s opinion expressing compliance with IFRS and ISAs on financial statements that do not comply with these international standards.”
IMF is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
It plays central role in the management of balance of payments difficulties and international financial crises.
On July 29, it announced that its executive board approved US$49.1 million (about M866 million) in Emergency Support to Lesotho to address the COVID-19 pandemic.
Which is why one would have imagined that the Bankers Association of Lesotho (BAL), would have been roused to swift action in an attempt to mop up the considerable reputational damage not only to the banks, but the Central Bank of Lesotho (CBL), the financial sector in general and Lesotho itself.
The IMF claims are a damning portrait of Lesotho’s banking sector. Details of the report were revealed by The Night’s Watch on Tuesday.
By Saturday morning, four days after publication of the IMF report’s devastating contents by The Night’s Watch, there was no statement from BAL or any of the four commercial banks, not even a mere “we have noted the IMF claims” statement.
It is as if BAL and the banks, are hoping that this will just blow over.
The Directorate of Corruption and Economic Offences (DCEO) also seems to be distracted, by what, nobody knows.
On Thursday, CBL released a statement refuting the IMF findings.
“The allegations of malpractice regarding auditing of banks in Lesotho are therefore unfounded,” CBL said.
It added that: “The public is assured that the local banking industry is operating professionally within a robust regulatory framework and underpinning international best practice and standards. There is therefore no need for alarm.”
The following day, on Friday, LIA also released a statement.
LIA was established by the Accountants Act of 1977, which gives the institute the mandate of regulating the accountancy practice in Lesotho.
In its statement, LIA noted that although it was not consulted when the IMF mission was in Lesotho, it would engage IMF to establish the basis of its conclusion that Lesotho banks use foreign audit firms, and “further carry out an investigation should there be malpractice”.
It said: “LIA wishes to inform the members, stakeholders, and the general public that thorough investigations will be conducted into these allegations and the findings will be communicated.”
It further stated that the laws of Lesotho reserved licensing of auditors to LIA, and only auditors so registered can sign the audit reports in the country.
“The institute is aware of partnerships that some registered audit firms in Lesotho have with firms outside the country to carry out some audit assignments. LIA however is not aware of incidences where local audit firms signed audit reports without being engaged in the audit process,” it said.
LIA also emphasized that all registered audit firms in Lesotho were subject to quality control reviews, which it does, and were therefore carrying out their audits in accordance with International Standards of Auditing. NW